Alert January 21, 2014

Target of CFPB Complaint Loses Argument on Unconstitutionality

The United States District Court for the Central District of California denied a motion to dismiss brought by a target of the CFPB’s enforcement powers. In August 2013, the CFPB filed a complaint against a debt relief-service company for violations of the Telemarketing Sales Rule (see September 3, 2013 Alert) and alleging that the company engaged in deceptive and unfair practices in violation of the Dodd-Frank Act. The company subsequently moved to dismiss the complaint on the grounds that the CFPB, as an agency, was unconstitutional, and that the CFPB did not state a claim for which relief could be granted. In particular, the company argued the CFPB’s structural features, including, among other things, the fact that the President could only remove the CFPB Director for cause, thereby restricting the President’s executive power, and the CFPB was funded by the Federal Reserve System as opposed to the regular congressional appropriations, rendered it unconstitutional under Articles I, II, and III of the Constitution. The Court found none of the company’s arguments persuasive and denied the motion to dismiss.